The first day of September was a rough day for companies that handle the day-to-day details of millions of American mortgages. First, the U.S. Treasury announced that two of the nation’s largest mortgage servicers are doing a poor job modifying loans for people who deserve it, and the government won’t pay the companies until they improve.

The same day, a third large mortgage servicer agreed to pay $53 million to consumers for unfair practices related to servicing and modifying mortgages.

“Our agreement sets a new higher standard for the residential mortgage servicing industry, whose troubling foreclosure and servicing practices we have been investigating along with other regulators across the country,” Benjamin M. Lawsky, superintendent of financial services for New York State, said in a press release announcing the state’s $53 million settlement against Goldman Sachs.

In the Treasury decision, the agency singled out Chase and Bank of America, saying the mortgage servicing companies owned by the two megabanks did such a poor job rewriting mortgages under the federal Home Affordable Modification Program (HAMP) in the second quarter of 2011 that neither company will get paid.

“(W)e need to keep the pressure on servicers to effectively assist those homeowners who are still struggling and eligible for assistance,” Tim Massad, Treasury’s assistant secetary for financial security, said in a press release.

Both Chase and Bank of America need to make “substantial” improvements before they can start getting paid again by the federal government. Bank of America did a poor job calculating something as basic as homeowners’ incomes, and only a fair job of informing consumers and the federal government about its modification program, according to a report by the Treasury.

Chase performed even worse in those areas. It was the second straight quarter that the two banks failed to meet the program’s requirements.

The failing grade is somewhat ironic since Chase and Bank of America have been two of the most successful banks in the program in terms of writing permanent modifications, which in most cases means reducing the interest rates on mortgages to make the monthly payments more affordable. Together the two banks have issued 225,693 modifications, 38% of the total 675,447 approved under HAMP so far.

That in itself is a tiny fraction of the 4 million American homeowners the Obama administration initially claimed would be helped by the program. Back in December, the Congressional Oversight Panel described HAMP as an abject failure.

The second piece of bad news came in a settlement worked out between Goldman Sachs, the Federal Reserve and the New York State Department of Financial Services over allegations of deception and unfair practices in the Goldman’s mortgage servicing division, Litton Loan Servicing.

Litton was accused of filing forged documents to foreclose on homeowners, unfair practices that prevented qualified homeowners from obtaining mortgage modifications, and charging homeowners improper fees. Goldman is trying to sell the Litton decision to another company, but the federal and state regulators promised to fight the sale unless Goldman agreed to a list of demands.

The biggest part of the compromise: Goldman will set aside $53 million to repay homeowners hurt by the misdeeds. All New York residents whose loans are owned by Goldman and serviced by Litton, and who are more than 60 days delinquent, will get 25% of their principal written off, according to the state agency.

In addition, the agreement requires Litton to stop foreclosure proceedings against people whose documents were forged by robo-signers. People who lost their homes due to documents that were robo-signed will be repaid the value of their lost houses.

Sign up for our weekly newsletter.

Sign up for our Credit Report Card and receive the latest tips & advice from our team of 50+ credit and money experts as well as a FREE Credit Score and action plan. Sign up now.

Contributing writer for Credit.com, Chris graduated with honors from the Columbia University Graduate School of Journalism, and has reported for a number of publications including The New York Times, TIME magazine and Popular Mechanics.

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

This is just ridiculous.
I purchased my investment property in 2005 for $2.1 million dollars. Recently, (over the past 18 months) I’ve had a tremendously high vacancy rate due to the poor economy and it began taking a toll on all my reserves just to maintain the property. I tried to negotiate with my lender (Bank of America) for a modification. I went round and round with the bank, submitting documents and so on and in the end, Bank of America denied me for a modification. I couldn’t understand why they wouldn’t modify my loan when it was clear that the economy hamstringed my ability to service the debt. The only thing that Bank of America could tell me was that the investor was the one who declined the modification. I asked who the investor was and they would not tell me. It was then that I began to look closer at my original loan and I saw on the Deed of Trust that MERS was listed as the Beneficiary. With all the information about MERS in the news I decided to talk to an attorney. My attorney had an auditing company called Lighthouse Consulting Group review my documents for both a forensic analysis of my original loan documents as well as a Mortgage Securitization Audit. It turned out that my loan was securitized in a trust called “Structured Asset Mortgage Investments II Trust 2005- 8. It was in this trust; there is a pooling and serving agreement, which governs the rules of the REMIC Trust. In my loans pooling and servicing agreement, it said specifically that any loan modified would require a buy-back from the servicer. Now, it was about this time that I began to default on my loan and was looking at ultimately losing my investment property. I was already 6 months in default at this point. The individual I talked to that is an attorney and real estate broker immediately ordered a forensic audit for predatory lending. Commercial properties do not have TILA and RESPA violations. The attorney also ordered a securitization audit to verify if the lender that filed the NOD was actually in proper standing. Both audits reveled several issues about my loan. First, the forensic audit proved that my lender had wrongfully calculated my payment it was overstated by $350 per month. Secondly, the loan itself was an adjustable loan based off the Libor Index, which was dropping, but the loan always adjusted up. This was a major development in a very positive way for me. Then, I had the securitization audit show that my loan was never securitized properly and the note and deed were not even with the same party. My attorney drafted a complaint, outlining everything I have mentioned. As soon as the lender was served, they contacted my attorney and settled without going to court. The settlement I got was a principal balance reduction of $400,000; my interest rate was reduced to 4.5% fixed for 30 years.

Lynne Rothchild

VERY nice result, JStern! Unfortunately, I’m afraid anyone that’s not a millionaire able to afford a $2.1 million second home in the first place and then what was I’m sure a very high-paid attorney in the second place, would just be foreclosed upon and out on the street.

Certain credit cards and other financial products mentioned in this and other sponsored content on Credit.com are Partners with Credit.com. Credit.com receives compensation if our users apply for and ultimately sign up for any financial products or cards offered.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.